Life Insurance Tips, Traps and Suggestions

Life insurance is an important and integral part of comprehensive and sound financial planning. A life insurance policy is a legal contract between you and the life insurance company. While price is an important consideration, the terms and conditions of the contract are of utmost importance.

In simple terms, you agree to pay money in regular installments (the "premium") and the insurance company (subject to the terms, conditions, limitations and exclusions of the contract) agrees to pay a sum or sums of money if you die and/or if certain other event(s) or actions or situations occur while the policy is in force as set out and defined in the contract. Just like any other contract, life insurance contracts have terms, conditions, limitations and exclusions. Some life insurance contracts are relatively 'simple' whereas others are highly complex legal-financial documents.

Tip: Understand Your Policy

Make sure that you understand the policy, its terms, conditions, limitations and exclusions before you accept the policy. Any ambiguity should be clarified in writing. Remember, if a policy 'type' appears to be 'simple', that doesn't necessarily mean that the contract wording is simple.

Caution for Internet Term Insurance Shoppers

The Internet is a wonderful resource of archived information. Used properly and with the understanding of its limitations, the Internet can be a valuable added research resource. The Internet is also an inexpensive and easily available advertising resource. Since about 1995, numerous term insurance sales and sales lead solicitation websites have sprung up - and new ones are sprouting daily. As a general rule, the fewer qualification questions that are asked the less reliable are the quotations and illustrations presented to you. The following are a few tips that you may wish to consider:

A. Unless you wish to receive sales solicitations, avoid giving your name and contact information at Internet term insurance sites.

B. Don't assume that any site surveys or compares virtually all the companies or options. If you use the Internet to research insurance costs, don't limit yourself to one site; visit at least three. Then, equipped with any knowledge that you may acquire, contact your trusted insurance and/or financial advisor for professional advice.

C. Keep in mind that the fewer qualification related questions that are asked at the web site, the less reliable the quotations and comparisons at the site will be. Also keep in mind that a company that appears very competitive for "ultra preferred" or "preferred plus" rates may not be as competitive with their other alternatives if you do not qualify under the "ultra preferred" or "preferred plus" acceptance rules.

D. If you are considering term insurance, insist on full and detailed disclosure of guaranteed renewal costs and conversion options, if any.

E. DON'T cancel any existing life insurance just because you see what appears to be a lower cost advertised on the Internet. If you choose to go with what appears to be a lower cost option, get the agent to complete a detailed comparison of your existing coverage and the proposed new coverage, have the agent complete the application fully, wait until the policy is issued AND delivered to you, and read the policy carefully before making your decision. Remember (and confirm with the agent) that in most cases you can return a new policy for cancellation and a full refund within 10 days after its delivery to you by the agent.

F. Seek independent advice by a local, trusted, insurance professional BEFORE making any decision to purchase life insurance over the Internet and ask the agent to supply you with a current LifeGuide market survey of options.

Tip: Internet Purchase Checklist

If you consider purchasing life insurance over the Internet, request a copy of the illustration and of the policy contract wording before you sign. Then, make sure that you read and understand the policy, its terms, conditions, limitations and exclusions. Any ambiguity should be clarified in writing.

Common Traps to Avoid

Trap: "No Agent" Mail Order and Internet-Sold Life Insurance

The slick sales pitches of "no-agent", mail order and "no commissioned agent - buy over the Internet" life insurance ads are best to ignore.

The insurance peddled by these canned sales pitches may turn out to be more expensive than competitive insurance normally available on the market. This is most likely one of the reasons that such sales operations sometimes refuse to provide information to have their claims - and their rates - compared independently with the offerings of their competitors.

Tip: Research and Compare

Check the term and life insurance market pricing and trends at http://www.winquote.net or http://www.term.ca or http://www.consumerterm.com. These consumer information sites are maintained for your benefit as a consumer, to provide you with access to unbiased, comprehensive and objective independent resources.

After examining your options, seek the advice and assistance of a qualified professional life insurance agent, broker or financial planner to help you assess your needs and to choose the life insurance contract that best suits your requirements and your budget. Most likely you'll end up paying less than for "mail order" or "internet order" insurance AND you receive knowledgeable personal advice and attention. Why pay more to get less?

Trap: Signing Before Reading

Signing a life insurance application before carefully reading and reviewing each question and answer.

Tip: Read Before You Sign

Never sign before you carefully read the application or unless you agree with all entries made thereon.

Remember, the application forms part of the contract. Check to make sure that the application is fully and properly completed. "If in doubt check it out!" Don't be shy of asking questions and don't be shy to elaborate on your answers to the application questions. A professional and knowledgeable life insurance agent, broker or financial planner will be more than happy to explain each and every item to you. Don't take a comment such as "it's not important" as an answer. Every item on the application is important and may affect your coverage.

A fully and properly completed application will expedite issuance of the policy and will reduce the potential of difficulties later on.

Important: Online Signatures

Be particularly careful about "clicking" a "signature" for life or term insurance on the Internet.

Before "clicking":

  • Is the entirety of the completed application displayed to you on-screen when you are asked to click?
  • Are you certain that you fully understand each question and that the questions are clear and unambiguous?
  • (If there is "fine print") Did you read and fully understand the entirety of the fine print?
  • Have you received independent advice and compared against available options with an insurance broker/agent or financial planner or through an independent consumer information site?
  • Have you printed off a complete copy of the application form?
  • Are you sufficiently confident about the security of your private information when it is transmitted over the World Wide Web?

Trap: Replacing Individual Insurance with Group Creditor Insurance

Often referred to as "Mortgage Insurance", "Credit Card Balance Insurance", "Loan Balance Insurance" etc.

Tip: Don't Replace Individual Insurance with Creditor Insurance

In addition to the other hazards involved with replacing life insurance contracts, the following hazards, risks and uncertainties are added when individual life insurance is replaced with group creditor insurance:

  • Group creditor insurance coverage often decreases as you pay off the loan or mortgage but the premiums you have to pay often remain the same or even increase over time.
  • Normally you cannot continue with the same group insurance if you decide to re-finance the mortgage or the loan with another lender. If your health or other factors affecting insurability change, it may not be as easy to shop the market for the best loan rate and to keep the insurance.
  • If your health or insurability deteriorates, you run the risk of your lender getting this information and this, in turn, may affect your ability to renew or continue with the loan itself.
  • With group creditor insurance, the creditor is almost always the beneficiary - if the policy expires before you do, they profit; if you expire while the policy is still in force, they are usually the beneficiary.
  • You will rarely, if ever, get a fair opportunity to fully examine the policy contract. (Normally all you receive is a single 'certificate' which is subject to the Master Policy which, of course, you don't normally get)
  • You have less regulatory protection since the regulators rarely, if ever, require that the creditor complete a comparison disclosure form when they replace individual insurance with their group creditor insurance.
  • You have far less control and the group creditor life insurance may be canceled with little or no notice to you.

Trap: Quick "Needs Analysis"

Snappy, so called "needs analysis" that are short on substance but long on the gab can be next to worthless. Often, these 'quickies' are merely part of the sales pitch. A proper needs analysis is detailed and takes into account your existing insurance, your existing financial resources and assets, government benefits, your income needs, your tax liabilities, other liabilities etc. Beware of so called "analysis" that fails to take inventory of your existing coverage and existing liquid cash resources.

Tip: Insist on Proper Needs Analysis

In a proper needs analysis, details are shown clearly in an easy to follow and understand format. A proper insurance needs analysis also provides for adequate reserving for unforeseen expenses and liabilities. The preparation of a full, fair and proper needs analysis requires the right tools, such as those provided on LifeGuide or on other professional financial planning software. Proper insurance needs analysis may also require the knowledge and expertise of a qualified life insurance agent, broker or financial planner.

Avoid the risks of quick n' snappy so called 'needs analysis'.

Trap: Sweeping Statements by Self-Serving "Experts"

Such as "Replace your life insurance every 10 years", "Consider convertible policies only if you are in bad health", etc. are outright dangerous. "Always buy term" is as wrong as "Always buy cash-value policies" and is as wrong as "Universal life is the universal solution". Sweeping statements and generalizations like these are a sign of lack of knowledge or lack of care or both.

Tip: Seek Qualified Professional Advice

Avoid falling into these traps. Check the relevant professional qualifications of self-appointed "experts"; often they have none! Just because they have good writing skills or have managed to get articles into print doesn't mean or even indicate that they are insurance or financial "experts". Consult with a qualified life insurance professional or financial planner who will review your individual needs and make recommendations based on your individual financial requirements and resources.

Trap: Comparing Only Initial Premium Rates

Life insurance market comparison 'surveys' based solely and only on 'Initial Term Premium rates'.

Would you base your decision to purchase a home or a car only on the down payment amount? Not likely. Shopping for life insurance merely and only on the basis of 'initial' premiums is just as foolish.

Tip: Consider Total Long-Term Costs

When comparing term insurance options, always consider the total cost over the expected holding period, including renewal premiums, conversion options, and long-term value. A comprehensive comparison should evaluate multiple factors beyond just the initial premium.

Additional Resources

For more information and professional assistance, please:

  • Consult with a qualified, licensed insurance professional
  • Review independent consumer information sites
  • Use professional comparison tools like LifeGuide
  • Take your time and ask questions
  • Always read the fine print

Remember: Life insurance is an important financial decision that deserves careful consideration and professional guidance.